Following a rally early on Friday supported by U.S. President Donald Trump suggesting he could intervene in the ongoing Saudi-Russia oil price war and by a flow of stimulus from governments to support their economies stricken by the coronavirus pandemic, oil prices resumed their slump on Friday.
At 8:23 a.m. EDT on Friday, WTI Crude was rising 2.97 percent at $26.62, and Brent Crude was up 3.40 percent on the day at $31.25. But by 11:00am, WTI had sank to $25.02, with Brent falling to $30.13.
Oil prices were set for a weekly drop of more than 10 percent for the fourth weekly decline in a row.
After a panic-driven bloodbath on the markets on Monday, Tuesday, and Wednesday, oil prices staged a relief rally on Thursday, which extended into Friday’s trading after President Trump said on Thursday that “at the appropriate time, I’ll get involved” in the Saudi Arabia-Russia oil price war.
Wow, Crude just spiked below $20!!!
Unleaded is at 60c!!!
Whose fault is the collapse Mike? Saudi Arabia? Russia? Or the US? I have an opinion, just wondering what yours is.
Jim,
Great question. I really don't know that we should "blame" one or all of those countries.
In fact, maybe we should be thanking them? The below thoughts are speculative/opinions.
The lifeblood to every developed country's economy is its access to cheap, reliable, abundant and power packed fossil fuels.
You might remember 2008, when crude spiked close to $150............just before the widespread global, severe recession.......which was a contributing factor.
https://www.cnbc.com/2018/07/13/risks-rising-that-oil-prices-will-cause-next-recession.html
metmike: In every situation in the past, when oil prices dropped precipitously, OPEC and the big oil producers cut back supplies to support prices. But this time has been completely different. Instead of cutting, they increased production. This is puzzling, regardless of some of the explanations that we hear.............unless you think about a couple of situations not discussed.
Those situations are speculative on my part.
As much as high oil prices almost always precede recessions(and even cause them-though an economy overheating will cause high oil prices before it causes a recession) and this affect is well known, the opposite affect from lower fuel costs to businesses and consumers is just as beneficial to an economy and irrefutable.
In this case, the price is getting SO low that its devastating the energy industry that is doing more damage than the benefits of lower fuel costs, so nobody discusses the benefits(if oil was over $100, you bet everybody would be telling us about the recession because of economic costs/damage and not telling us as much about energy stocks at record highs).
So we are hearing only about the damage here and the blame for it from too much oil.............which is one of the few times in history low energy prices are getting a very bad rap.
We know that Trump has a special alliance with Saudi Arabia because of their oil production. When they assassinated the reporter in cold blood, he failed to take decisive actions to penalize them because he clearly wants to maintain a friendly status and the only reason for that is their oil production.
If you took out the negative consequences from the oil industry and other industries they affect(I know its massive) the benefits of much lower fuel prices to global economies is huge and undeniable.
Global economies are collapsing right now and need to be rescued anyway possible. Saudi Arabia and Russia are seemingly shooting themselves in the foot by producing even more oil, on top of the current glut. I understand there is alot more to it but they are well aware of the benefits to all economies from cheap fuel.
In a world where Russia and Saudi Arabia are evil empires that are trying to cause chaos and obliterate the US, we hear only the negative narratives about how they are trying to run the US shale producers out of business and wreck the US economy and businesses.......ironically, by intentionally causing the price to plunge for their product, when at every other time in history they did the exact opposite.
For sure, we are never told everything about whats really going on. With Trump, if a foreign country is doing something that is harming the US, he would be tweeting it from the rooftops and slamming them with everything but the kitchen sink.
In this case, if this excess oil production is meant to hurt the US, Trump would know better than anyone and letting us know in every way, shape and form.............but look at his response, just yesterday:
Alexandra Alper, Timothy Gardner
"WASHINGTON (Reuters) - U.S. President Donald Trump on Thursday said he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time, saying low gasoline prices were good for U.S. consumers even as they were hurting the industry. "
Guess what. Trump WANTS THIS. If he didn't that would never be his response. Trump must be giving the greatest weight to low fuel costs. It's not hard to imagine, that if he wants this that he would communicate that to Saudi Arabia and Russia. Clearly they know.
Is Trump being dumb for giving such great weight to the benefits from low fuel prices to the economy?
We know that he loves the energy industry and they love him. If he were more outspoken about this wish for low energy prices, he would lose alot of support from this powerful industry.
If there have been discussions between him and Saudi Arabia/Russia on this, why would he tell us if its obliterating the US energy industry?
The other thing. I have always felt strongly that the gas and oil industry has wanted us to believe that there is less oil in the ground than what really exists............so they can charge more for it.
I think there's a chance that abiotic(non fossil fuel) oil exists in significant amounts. If that's true, then we have been paying extra for something because we thought the supply was going to run out eventually.
Why would people in the oil and gas industry not try to get the most for their products?
So oil dropped to $20 this week and seems way, way too cheap based on what we think that it should be worth..........which is why its been going for $50+ in recent years.
What if, the market was told there was 2 or 3 times as much oil in the ground............100+ years of unlimited amounts for us?
That, by itself would cause the value to plunge lower than $50. Of course the cost to get it out of the ground and bring it to the market is important too. At $20, shale operations can't do that profitably.
But keep in mind that the oil industry has been making more money than almost any other with past prices..............based on the dynamics then.
What if the future oil industry only made 25% of that amount of money?
Yeah, alot of jobs lost, less taxes paid and harm to other businesses as it adjusts to much less favorable conditions. But thats how markets work. Supply/demand and competition.
Price wars and competition with more supplies is the complete opposite of price fixing and what we have hated the most about OPEC for the past 5 decades.
How many times in the past, did you read headlines about OPEC cuts/agreements, watched crude go way up and felt ticked off that they could do that to you and me?..........everybody on the planet!
So maybe we should not be ticked off here when just the opposite happens from a market trading freely without quotas or restrictions.
Blame probably isn't the right word, I agree, sub $2 gas is pretty nice.
I am referring to the overall tone of every article I read that vilifies the Saudis and Russia as the perpetrators of the price collapse in crude and unleaded and somehow the US comes out unscathed in the opinions of most, even though it was the US that has increased their production over 4 mbbls a day over the last 2-3 years and has become the largest producer in the world. All the while Saudi and Russia has maintained or even cut their production.
I lay the responsibility of the crash solely at the feet of the US producers.
Apparently Harold Hamm had some idea of what might happen with unrestrained US oil production.
This is true, the US has increased production the most of any country the last 3 years.
This has allowed us to be energy independent and prices to remain more stable/affordable.
It has increased jobs and income and done almost all good things..............then the Coronavirus hit and it meant TOO MUCH production.
The US oil industry was walking a fine line before CV hit. There were plenty of articles about banks tightening up loans and investors wanting returns on their investments, but the profit levels weren't there.
There was a perfect storm of plenty of oil, CV and OPEC+ throwing in the towel and there was almost a slingshot affect for prices to dive.
I believe you Jim.
Does anybody think the shale oil producers deserve a bail out